HOUSING BUBBLE….I’ve written about the housing bubble a few times before, most recently a few days ago when I wondered what could be done about it without also crashing the entire economy in the process. In the latest issue of the Washington Monthly, Benjamin Wallace-Wells says the answer is: not much. We’re screwed no matter what:

Given the lateness of the hour, and the near-inevitability of the coming crash, there’s really only one thing left for concerned citizens to do. Start assigning blame.

Fortunately, the bad actors responsible for this manic inflation are pretty easy to recognize. They look remarkably like the ones who puffed up the tech bubble in the late 90s. In both cases, the unfettered optimism of the buying public was fueled by a brokerage industry almost wholly concerned with making a sale, independent analysts with an incentive to hype prices, and major accounting fraud.

Accounting fraud? Yep, although it goes beyond that, as Ben explains.

What’s really disturbing about the whole thing is that we’ve seen it all before. Aside from the fact that the industry turned out to be chockablock with crooks, one of the major systemic causes of the savings and loan debacle in the 80s was the fact that the S&L industry was deregulated but federal deposit insurance stayed in place. This removed a lot of the risk from making loans, which in turn caused S&Ls to approve huge numbers of loans that they shouldn’t have. After all, if the loan panned out, everyone made money; if it didn’t, the feds would cover it. Eventually, of course, it all came crashing down.

It looks like we’re singing the same song again, just in a different key. It’s funny how the home mortgage industry keeps making this mistake.

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